Following recent voter approval of a referendum restricting a local property tax levy, Fitch Ratings this week downgraded $11.3 million of outstanding limited-tax general obligation debt issued by Troy and the Troy Municipal Building Authority to AA-plus from AAA.

Fitch also affirmed its AAA rating on the affluent Detroit suburb’s $31 million of unlimited-tax GO debt, and revised the outlooks to negative on both the limited- and unlimited-tax GOs.

The downgrade comes as Troy faces less financial flexibility, stemming in part from a successful Nov. 4 referendum that reduces the city’s maximum authorized property tax rate to the current tax rate. The measure eliminates “any margin by which the rate could be increased to pay LTGO debt service or operating expenses,” Fitch analyst Melanie Shaker wrote in a release on the downgrade.

Troy enjoys the most affluent tax base in the state besides Detroit and per-capital incomes that are more than 150% of the U.S. average, according to Fitch. But the city faces a number of challenges, including a weakening economy and a slowdown in the growth of its taxable valuation.

“The negative outlook on both LTGO and ULTGO bonds is indicative of the loss of the city’s operating tax margin, the expectation of cuts to state aid, slowed growth or declines in the tax base, and a weakening employment picture, which are all likely to pressure the budget in the next few years,” Shaker wrote.

On the positive side, city officials have cut spending over the year and have crafted a plan for further cuts in light of the recent referendum. Troy also generally maintains a substantial general fund balance — totaling 38% of spending in fiscal 2007 — and well-funded pensions.

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